Abstract
This paper marks a radical diversion from the large body of prevailing literature in business ethics which primarily views the issue in individual-personal terms, i.e., corporate executive and employee, and suggests that making corporations more ethical would primarily come through changes in executive behavior. While this approach has strong intellectual roots in moral philosophy and religion, it fails in explaining the persistence of unethical and illegal behavior among corporations of all sizes, financial health, competitive market conditions, and, level of individual executive compensation. This paper argues for a fundamentally different approach to understanding ethical behavior, or lack thereof, among corporations and their executives. It is asserted that an overwhelmingly large rationale and/or inducement for proactive ethical business behavior is rooted in competitive aspects of particular markets, and industry structures prevailing in those markets. Furthermore, while highly competitive markets may promote efficiency, they do not guarantee ethical behavior and may indeed provide greater opportunities and incentives for unethical business behavior. Thus, by following the current prognosis, we could be wasting enormous resources in terms of teaching business ethics, and creating and imposing corporate codes of conduct. We assert that these approaches would at best make a marginal improvement in the ethical performance of corporations while at the same time exacerbate the problem by ignoring more fundamental, structural issues. Imperfect markets, with their above-market profits, are a necessary but insufficient condition for corporations to behave ethically. It is only under conditions of imperfect markets that individual executives can play an important role in guiding their corporations toward greater ethical norms. These are undertaken for a variety of reasons, including, protecting a corporation's good name, public expectations, competitive norms, and, corporate culture and individual executive's predilections, to name a few.
Similar content being viewed by others
References
Baumol, W. J.: 1991,Perfect Markets and Easy Virtue: Business Ethics and the Invisible Hand (Blackwell, Cambridge, MA).
Binstein, M., and C. Bowden: 1993,Trust Me: Charles Keating and the Missing Billions (Random House, New York).
Bolton, J. R.: 1993, ‘A Second Look at Boardroom Reform’,The Wall Street Journal, June 2, A14.
Burrough, B. and J. Helyar: 1990,Barbarians at the Gate: The Fall of RJR Nabisco (Harper & Row, New York).
Byrne, J. A.: 1993, ‘Executive Pay: The Party Ain't Over Yet’,Business Week, April 26, 56–79.
Cook, F. J.: 1966,The Corrupted Land: The Social Morality of Modern America (The Macmillan Company, New York).
Crystal, G. S.: 1992, ‘Dubious Connection of Pay to Performance’,Pensions and Investments 20, 14.
Day K.: 1993,S&L Hell: The People and the Politics Behind the $1 Trillion Savings and Loan Scandal (Norton, New York).
Dobrzynski, J. H.: 1993, ‘Relationship Investing’,Business Week, March 15, 68–75.
Donaldson, T.: 1989,The Ethics of International Business (Oxford University Press, New York).
Drucker, P. F.: 1984, ‘Reform Executive Pay or Congress Will’,The Wall Street Journal, April 24, 34.
Falbe, C. M., and S. P. Sethi: 1989, ‘The Concept of Strategic Slack: Implications for the Choice of Public Policy Strategies by Corporations'’, Paper presented at theNinth Annual Strategic Management Conference ‘Strategies for Innovation’ (San Francisco, CA), Oct. 11–14, 1989.
Fromm, E.: 1949, ‘Psychoanalytic Characterology and its Application to the Understanding of Culture’, in S. S. Sargent and M. W. Smith (eds.),Culture and personality: 5 (Viking Fund, Wenner-Wenner-Gren Foundation for Anthropological Research: 5, New York).
Fuller, J. G.: 1962,The Gentlemen Conspirators: The Story of the Price-fixers in the Electrical Industry (Grove Press, New York).
Granovetter, M.: 1985, ‘Economic Action and Social Structure: The Problem of Embeddedness’,American Journal of Sociology 91, 481–510.
Guyon, J.: 1992, ‘Tobacco Companies Race for Advantage in Eastern Europe While Critics Fume’,The Wall Street Journal, Dec. 28, B1.
Harris, R. G. and J. M. Carman: 1991, ‘The Political Economy of Regulation: An Analysis of Market Failures’, in S. P. Sethi, P. Steidlmeier and C. M. Falbe (eds.),Scaling the Corporate Wall (Prentice-Hall, Englewood Cliffs, NJ), pp. 24–35.
Heal, G.: 1976, ‘Do Bad Products Drive Out Good?’,Quarterly Journal of Economics 90, 499–503.
Herling, J.: 1962,The Great Price Conspiracy: The Story of the Antitrust Violations in the Electrical Industry (Robert B. Luce, Inc, Washington).
Hirsch, F.: 1976,Social Limits to Growth (Harvard University Press, Cambridge, MA).
Holcomb, J. and S. P. Sethi: 1992, ‘Corporate Executive Liability for Law Violations: Appropriate Standards, Remedies, and Managerial Responses’,Business and the Contemporary World Summer, 81–105.
Leonard, J. S.: 1990, ‘Executive Pay and Firm Performance’,Industrial and Labor Relations Review 43, 135–295.
Lewis, M.: 1989,Liar's Poker: Rising Through the Wreckage on Wall Street (Norton, New York).
Longnecker, B. M., S. L. Cross and C. L. Wood: 1992, ‘High Executive Pay Meets Tough Scrutiny’,Journal of Compensation & Benefits 7(4), 13–17.
Loomis, C. J.: 1993, ‘King John Wears an Uneasy Crown’,Fortune, January 11, 44–48.
Lorsch, J. W., with Maclver, E.: 1989,Pawns or Potentates: The Reality of America's Corporate Boards (Harvard Business School Press, Boston, MA).
Magnet, M.: 1992, ‘Directors, Wake Up”,Fortune, June 15, 85–92.
Magnet, M.: 1993, ‘What Activist Investors Want’,Fortune, March 8, 59–63.
McNutt, P. A.: 1988, ‘A Note on Altruism’,International Journal of Social Economics 15(9), 62–64.
Monks, R. and N. Minow: 1991,Power and Accountability (Harper Business, New York).
Murphy, K. J.: 1985, ‘Corporate Performance and Managerial Remuneration: An Empirical Analysis’,Journal of Accounting and Economics, 11–42.
Nystrom, P. C. and W. H. Starbuck: 1984, ‘To Avoid Organizational Crisis, Unlearn’,Organizational Dynamics 12(4), 53–65.
Pettigrew, A.: 1973,The Politics of Organizational Decision-Making (Tavistock, London).
Pulliam, S.: 1993, ‘Calpers Goes Over CEOs' Heads in its Quest for Higher Returns’,The Wall Street Journal, Jan. 22, C1, C10.
Pulliam, S. and G. A. Patterson: 1993, ‘Sears is Target of Holder Group Urging Chairman to Give Up One of Two Titles’,The Wall Street Journal, Feb. 4, A1.
Redling, E. T.: 1981, ‘Myths vs. Reality: The Relationship Between Top Executive Pay and Corporate Performance’,Compensation Review, 16–24.
Roberts, R. W.: 1992, ‘Determinants of Corporate Social Responsibility Disclosure: An Application of Stakeholder Theory’,Accounting, Organization and Society 17(6), 595–612.
Rowe, F. E. Jr.: 1993, ‘Hurrah for October 15’,Forbes, Feb. 15, 234.
Saporito, B.: 1993, ‘The Toppling of King James III’Fortune, Jan. 11, 42–43.
Schelling, T. C.: 1971, ‘On the Ecology of Micromotives’,The Public Interest,25, 59–98.
Schelling, T. C.: 1978,Micromotives and Macrobehavior (W. W. Norton & Company, New York).
Sen, A.: 1973, ‘Behavior and the Concept of Preference’,Economica August.
Sen, A.: 1985, ‘The Moral Standing of the Market’,Social Philosophy and Policy 2, 1–19.
Sen, A.: 1987,On Ethics and Economics (Basil Blackwell, Oxford, England).
Sethi, S. P.: 1981, ‘The Expanding Scope of Executive Liability (Criminal and Civil) for Corporate Law Violations’, in S. P. Sethi and C. L. Swanson (eds.),Private Enterprise and Public Purpose (John Wiley & Sons, New York), pp 245–274.
Sethi, S. P.: 1994,Multinational Corporations and the Impact of Public Advocacy on Corporate Strategy: Nestle and the Infant Formula Controversy (Kluwer Academic Publishers, Boston).
Sethi, S. P. and N. Namiki: 1987, ‘Top Management Compensation and Corporate Performance’,The Journal of Business Strategy 7(4), 37–43.
Sethi, S. P., N. Namiki and C. L. Swanson: 1984,The False Promise of the Japanese Miracle (Pitman Publishing, Boston).
Sethi, S. P. and P. Steidlmeier: 1991,Up Against the Corporate Wall: Modern Corporations and Social Issues of the Nineties, 5th edition (Prentice Hall, Englewood Cliffs, NJ).
Shrivastava, P.: 1987,Bhopal: Anatomy of a Crisis (Ballinger Publishing Company, Cambridge, Ma.).
Stewart, J. B.: 1991,Den of Thieves (Simon & Schuster, New York).
Stewart, T. A.: 1993 ‘The Kind is Dead’,Fortune, Jan. 11, 34–40.
Vise, D. A. and S. Coll: 1991,Eagle on the Street (Scribners, New York).
Votaw, D. and S. P. Sethi: 1973,The Corporate Dilemma: Traditional Values Versus Contemporary Problems (Prentice-Hall, Englewood Cliffs, NJ), pp. 173–175.
Wilson, M. A., T. I. Chacko, C. B. Shrader and E. Mullen: 1992, ‘Top Executive Pay and Firm Performance’,Journal of Business and Psychology 6, 495–501.
Yaari, M. E.: 1981, ‘Rawls, Edgeworth, Shapley, Nash: Theories of Distributive Justice Reexamined’,Journal of Economic Theory 24, 1–39.
Author information
Authors and Affiliations
Additional information
S. Prakash Sethi is Professor and Acting Director, Center for Management, Baruch College, The City University of New York. He has widely published in the areas of corporate social responsibility, international business, business ethics, and corporate strategy and public policy. His most recent publication isMultinational Corporations and the Impact of Public Advocacy on Corporate Strategy: Nestle and the Infant Formula Controversy (Kluwer, 1994).
Rights and permissions
About this article
Cite this article
Sethi, S.P. Imperfect markets: Business ethics as an easy virtue. J Bus Ethics 13, 803–815 (1994). https://doi.org/10.1007/BF00876261
Issue Date:
DOI: https://doi.org/10.1007/BF00876261